Asia (Other)

Screen Shot 2018-12-14 at 5.44.36 PMDeveloping a deep understanding of the local market means investors can advance with greater confidence and fewer surprises.

 

Infrastructure projects in emerging markets attract investors on the back of potential returns that can outstrip yields in mature markets. But with opportunity comes risk, particularly in the construction, engineering and infrastructure sector, which saw the largest year-over-year increases in fraud incidents (up seven percentage points to 83 percent), according to our data collected in the Global Fraud & Risk Report 2017/2018.

In this article, we explore the steps that investors can take to help identify and mitigate infrastructure investment risks in Sub-Saharan Africa and South Asia.

Delivering infrastructure projects in Sub-Saharan Africa
Successful infrastructure investment requires the integration of projects into the host jurisdiction’s existing network of transport, power generation and distribution grids. This is not just an engineering challenge. It requires institutional capacity and a functioning legal and regulatory framework to accommodate large-scale, long-term investments.

Many Sub-Saharan Africa jurisdictions lack the planning capacity and resources to link existing infrastructure to new projects. Additionally, many new projects in this region tend to be politically significant and thus potentially vulnerable to non-transparent interference or influence. Unrealistic expectations about what the project can deliver can also undermine the investment’s commercial viability. For example, if investors in rail freight projects are expected to accommodate passenger transport, the economics of an investment can be distorted.

While investors should be aware of such red flags, they cannot often directly influence them. Pre-investment intelligence-gathering can help investors understand the regulatory environment and the implementation capacity of key government agencies in order to better assess the feasibility of a project.

Infrastructure investment remains a challenge in South Asia
Investors in infrastructure projects in South Asia face a similar set of challenges. For example, over the past three years, private sector infrastructure investment in India has slowed down due to a combination of stretched corporate balance sheets and rising non-performing assets for banks. The pace at which project-related decisions are being approved by various government departments also remains slow.

However, investment activity is still high in certain sectors in South Asia. One such example is the renewable energy sector in India, which has seen significant interest from domestic and international investors. While growth in renewable energy remains a key goal for the government of India, the aggressive push on the agenda has resulted in a sharp decline in uptake prices, mainly for solar energy, due to the entry of many players, most of whom have limited or no experience in the sector. This puts immense pressure on local developers to deliver projects at low cost, which in turn affects the quality of material used and the sustainability of such projects. At the same time, companies still need to work with local governments and other stakeholders to ensure they obtain necessary approvals in a timely fashion, which means that the risk of corruption remains.

Investors often struggle to understand whether the costs and performance of a project reflect its true health. Given the relatively close nexus between companies, politicians and bureaucracy in India, businesses often get pushed into practices which are potentially inappropriate and that can directly impact financial reporting. The wide gap between what is reported in the books versus the actual performance of the project casts doubt on the overall integrity of the quality and financials of a project. Other South Asian markets like Bangladesh and Sri Lanka are also exposed to similar issues.

While these challenges pose a risk, the significance of the opportunity often outweighs the cost of the risk. By developing a deep understanding of all the dynamics in the local market, investors can advance with greater confidence and make investments in line with their expectations regarding returns with fewer surprises.

 

By

Reshmi Khurana, Managing Director, Head of Southeast Asia, Business Intelligence and Investigations, APAC
E: rkhurana@kroll.com
Tarun Bhatia, Managing Director, Head of South Asia, Business Intelligence and Investigations, APAC

E: tarun.bhatia@kroll.com
Brian Weihs, Managing Director, Mexico Office Head, Business Intelligence and Investigations, LATAM
E: bweihs@kroll.com
Oliver Stern, Associate Managing Director, Business Intelligence and Investigations, EMEA
E: oliver.stern@kroll.com

W: www.kroll.com

_____________________________________

Kroll is the leading global provider of risk solutions with more than 45 years of experience in helping clients make confident risk management decisions about people, assets, operations and security. For more information, visit www.kroll.com.

Screen Shot 2018-07-20 at 1.08.23 PM

 

 

Related Articles by Firm
Physical security key to data centre protection
Controls that prevent physical access to servers must be a fundamental component of any information security programme ...
Combating private sector corruption in Indonesia: A challenge to address in 2019
With elections just around the corner, corruption involving government and public service agencies will likely be a top issue ...
Defeatist data security cultures no more
Organisations need to recognise that information security is a question of risk and step up defences now ..
Innovating internal investigations in today’s hyperconnected world
Data visualisation tools have emerged as a powerful resource for internal investigations ...
Why asset searches are increasing in Singapore
Parties choose to resolve their disputes in Singapore for the relative ease of enforcement of awards and judgments.
New ultimate beneficial ownership disclosure requirements: An important step in combating financial crime in Indonesia
The requirement will strengthen and amplify the anti-corruption, anti-money laundering, anti-tax avoidance/evasion and anti-monopolism efforts.
Kroll: Opaque ownership fastest-growing concern for compliance professionals
Less than 25 percent feel highly confident in their program’s ability to address these risks.
Singapore gets serious in fight against bribery and corruption
Conducting joint investigations and joint enforcement actions with foreign authorities may become a new norm ...
Global Fraud & Risk Report – 2017/18
Forging New Paths in Times of Uncertainty ...
Law firms play a critical role in the new Indian Insolvency & Bankruptcy Code
Many new reforms and regulations have been introduced to support economic growth. However, one area that was always neglected was bankruptcy law ...
Risks for investors ahead of 2018 Malaysia elections
Investors should be aware of elevated fraud and corruption risks in the lead-up to the election ...
Forensic accounting to assist asset search
There are endless ways to identify assets, but it can be a costly exercise ...
Buyer, beware!
The final of four reports from Kroll and Liberty Asia on how to mitigate any hidden compliance and reputational risks relating to human trafficking issues …
Forewarned is forearmed
The third of four reports from Kroll and Liberty Asia on how to mitigate any hidden compliance and reputational risks relating to human trafficking issues …
Crime vs. Ethics: Changing corporate culture to reduce modern slavery
The second of four reports from Kroll and Liberty Asia on how to mitigate any hidden compliance and reputational risks relating to human trafficking issues …
Reducing and removing involvement in modern slavery
The first of four reports from Kroll and Liberty Asia on how to mitigate any hidden compliance and reputational risks relating to human trafficking issues ...
Related Articles
Three key skills I wish I'd been taught in my law degree
Legal educators must arm graduates with the tools needed to embark on their legal journey.
Personal Data Protection Act published in the Government Gazette
Business operators should ensure that their businesses comply with the PDPA.
Are you optimising project management skills in your legal department?
Because you should! We all need to upscale our skillset in areas of people, process and technology.
Related Articles by Jurisdiction
Closing the financing gap — infrastructure project bankability
The perceived lack of bankable projects by international investors, not the lack of available capital, is the key impediment ...
Links between environmental destruction and corruption risk in Southeast Asia
Corporate investigators need only work in corruption and fraud cases in Southeast Asia for a short while before noticing a correlation as clear as it is unsurprising ...
Lawyering in the gig economy
Mardi Wilson, head of ES Agile in Hong Kong, talks to us about how working on an interim basis offers the benefit of flexibility and greater work-life balance for lawyers ...
Latest Articles
Rules of civility
Introducing the mindful business charter.
Three key skills I wish I'd been taught in my law degree
Legal educators must arm graduates with the tools needed to embark on their legal journey.
Personal Data Protection Act published in the Government Gazette
Business operators should ensure that their businesses comply with the PDPA.